A booming U.S. economy. Global instability. Anxiety-stoking volatility. Investors seek a path through the uncertainty.

by Bill Donahue

Based on the headlines, 2018 was a roller coaster of euphoric highs and crushing lows. For proof, look no further than the performance of the U.S. stock market. After soaring to historic heights in September and October, the market experienced something of a crash in late December, only to recover days later. Because of such volatility, some market watchers have characterized 2018 as a year to forget. That having been said, many of the same factors that caused such uncertainty last year remain firmly in place.

In the words of Timothy Chubb, chief investment officer for Girard, a wealth management division of Souderton-based Univest: “The market doesn’t like volatility, and right now we’ve got a ton of it.”

While the U.S. economy has shown remarkable strength and the potential for continued growth, other developments have been far less encouraging. From the chaotic government shutdown to the ongoing trade war with China, recent headlines have jangled many a nerve for edgy investors.

“So much hinges on the outcome of the U.S.-China trade negotiations,” says Chubb. “That’s important for a couple of reasons, and it will set the tone for the rest of the year. If we see a longer-term deal, it’s likely to lengthen the current economic cycle. If we don’t, a lot of companies will have to make some tough decisions, and it may lead to some weaker economic growth.”

Such “growth scares” aside, Chubb believes that, fundamentally, “things are still moving in the right direction.”

It’s About Time

The schizophrenic nature of the past year raises an important question in regard to the average American’s financial future: Does any of it matter? While investors should stay informed and pay attention to what’s happening in the world, Erik Strid believes making decisions for the short term has the potential to chill one’s long-term goals.

“All investment planning is about getting your time horizons right, and putting in money only when you can afford it,” says Strid, CEO of Concentus Wealth Advisors, based in King of Prussia. “If you calibrate your timeline correctly, you’re virtually bound to capture the rewards. Volatility has everything to do with your time horizon. There will be up-and-down changes over the life of an investment, but risk comes into play when you bought something and decided to sell it for lower than what you bought it for. For someone with an appropriate time line, risk doesn’t exist.”

Strid poses a what-if in regard to kneejerk reactions to news of the day: Say, on Christmas Eve, when the markets plunged—the Dow Jones Industrial Averaged fell a jaw-dropping 650 points—and pundits raised fears of an economic slowdown, an investor reacted by liquidating his or her assets. The markets showed a strong comeback just two days later, making the investor’s reaction a “regrettable mistake,” as Strid puts it.

“Some people feel they need to constantly react to stock-market volatility, but in 25 years of experience, that strategy doesn’t work; in fact, it often backfires,” he says. “A wealthier 50-year-old investor is likely to live to be 90 or 95 years old. So why should they care what happens in their portfolio in 2019, when they’re going to be drawing from that money 30 to 40 years from now? Why don’t we look ahead, and use that as our measuring stick?”

In other words, an underperforming investment portfolio may result from an investor “jumping in and out of the markets at the wrong times and for the wrong reasons,” Strid says.

Chubb suggests working with a professional to cultivate a well-thought-out financial plan—and then staying true to the plan’s architecture.

“If you’re trying to beat the market, you have to be right twice—when to get out, and when to get back in—and even the pros don’t always get that right,” he says. “Most of our clients pay attention to what’s going on every day, but in the end it’s about asking the question: ‘Did the likelihood of me being able to retire go up or down, and how likely?’ Short-term volatility makes people emotional, but when people think they can somehow time the market, that’s very difficult to do.”

Investors tend to have long memories. Many who might have had bad experiences resulting past downturns or economic events—the most recent being the 2008 meltdown that ushered in the so-called Great Recession—remain spooked. Because they got burned then, many have stayed away from the market entirely. Strid’s forward-looking advice: Be optimistic.

“The American economy is an amazing engine,” he says. “People say things like, ‘This time it’s different,’ but if you look at the history of this country, what would cause anyone to believe now is the time that a meltdown is going to start? … Household net worth is the highest it’s ever been. We’re approaching full employment. Economic performance is off the charts. Might we slow down? Yeah. But to think we’ll experience another 2008 crisis, to me it’s absurd.”

Baby Steps to Financial Literacy

With the pension now a relic of a forgotten age and Social Security rumored to be on borrowed time, Americans are largely on their own when it comes to funding their retirement.

For many, this is an onerous task, driven in part by a trend that suggests an overwhelming number of Americans—including college graduates—are financially illiterate. In other words, they lack the education and understanding needed to adequately manage their personal finances and investments. Cases in point: 25 percent of U.S. adults do not pay their bills on time, and 8 percent have debts in collections, according to a 2018 Consumer Financial Literacy Survey, conducted on behalf of the National Foundation for Credit Counseling.

Schools, nonprofit organizations, and employers have stepped in to offer lessons in financial literacy. In addition, some teens and pre-teens gain an education in personal finance from other sources, such as their parents’ financial advisors.

“We send birthday gifts to our kids’ clients, including books that reinforce the importance of preparing for the future,” says Erik Strid, CEO of Concentus Wealth Advisors in King of Prussia. “One of the books is The Richest Man in Babylon [by George S. Clason]. It’s about a man in ancient Babylon, told in parable form, and it really reinforces the habits of frugality, the importance of paying yourself first, the power of compounding interest—simple lessons that can go a long way.”

To his point, online and brick-and-mortar bookstores stock any number of tomes that can help the next generation find a path to financial literacy. Among them is The Squirrel Manifesto, by Ric and Jean Edelman, which uses artfully drawn squirrels to teach lessons in treating money “the right away,” as the publisher puts it: Use some now, save some for later, share when possible, etc. Ric Edelman, incidentally, is a financial advisor and the co-founder of Edelman Financial Engines, which has offices in the Greater Philadelphia Area.

Books aren’t the only resource, of course. The Please Touch Museum in Fairmount Park opens a new exhibit this month called “Cents & Sensibility,” to root children in concepts such as earning, saving, and spending. The exhibit features a host of activities and attractions designed to help children have fun while learning the value of a dollar. At the same time, the exhibit aims to provide parents with resources to teach kids how to practice good financial habits going forward.

“Financial literacy in this country is in a terrible state,” Strid says. “At least by the time someone has gotten their first job, earning income, they should understand the power of saving and setting aside. I would suggest getting some advice [to prepare for the future] as soon as you get your first job, if you haven’t already.”

Published (and copyrighted) in Suburban Life magazine, January 2019.

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